Flotations to 'plumb new depths'

COMPANY flotations on London's main stock market are at their lowest levels since the 1980s and conditions are unlikely to improve much in 2002. City bookmaker Cantor Index has already lowered its expectations for new issues next year by marking down its spread on the likely number of initial public offerings in 2002 garnering more than £50m to 15-17, from an earlier estimate of 18.

Cantor's David Buik said his firm's first spread had been 'readily sold' by punters expecting another slow year for capital raising from the main market.

After a brief window at the start of the year, analysts now believe there is unlikely to be a pick-up in initial offerings activity until the autumn, signalling another lean year for investment banking and financial public relations operations, which gorged on the mania for new issues until the bull market ended last year. KPMG head of new issues Neil Austin said the tally of 49 main market floats in 2001 is the lowest since his records began in the depths of the last recession in 1990.

He said sentiment has improved slightly over the past few weeks but activity is unlikely to show a sustained pick-up until well into the year. In the current economic climate there is also a shortage of companies with solid enough growth prospects to entice investors to support them.

'The short answer to the question of whether there is a prospect of getting back to the numbers of new issues seen in 1999 and 2000 is no. Partly that is because there is not the right climate of confidence around, but also because a lot of the companies in those years came broadly from the technology sector, telecoms and software,' Austin said. 'There is a bit of an uptick of activity in IPO preparations, but I think there will be a lead time before we start getting moderate numbers of companies coming forward again.'

With the faltering economy limiting corporate growth prospects, companies in more recession-proof sectors such as healthcare, pharmaceuticals and outsourcing companies should play an increased role in the new issues market next year.

London Stock Exchange statistics show depressed equity prices severely curtailed enthusiasm for listings during 2001. A total of 49 main market listings compares with 114 in the previous year, while on the Alternative Investment Market the tally of 77 new issues was only 43% of the record 179 hit in 2000.

The total raised from initial public offerings of shares on AIM and main London markets this year was £9.3bn, down from £17.3bn in 2000 and from £11.1bn in 1999. Including private share placings, money raised from all new issues was about £10.9bn, compared with £18.7bn in the previous year.